Extra space in your house, a desire for extra cash, or the need to make ends meet might convince you it's time to rent a room in your house. Boarding renters, whether short or long term, has both business and legal consequences. Even if it feels like a roommate situation, renting a room in your home is a business. Find out how this landlord-tenant relationship affects your insurance before drawing up a lease.
The specific rates for renter's insurance will depend upon whether you are requiring tenants to acquire renter's insurance or if you are planning on purchasing landlord insurance to protect against unexpected tenant issues.
Making the Right Inquiries
Call up your homeowner's insurance agent and let her know your game plan. Tell her you want to rent the room and the number of renters you plan to board over the course of a year. Your insurance provider's answer may range from "no problem" to "no, sorry." Some homeowner's policies cover you without raising your premium if you take on no more than two tenants. Others may place limitations on the coverage, and some won't cover you at all once you rent a portion of your home.
Evaluating Business Risks
Because renting out a room in your house increases liability and the risk of property damage, your homeowner's insurance provider may dump you. In this case, it's time to look into landlord insurance. Landlord insurance is applicable whether you are renting out a room or a separate unit. Policies can cover you for lost rental income if your place becomes uninhabitable due to something your tenant did while you were not there to keep an eye on things. Since taking on a renter increases your liability, a landlord policy protects you against a lawsuit for bodily injury on the property, or damage your property might cause to your tenant's stuff.
Assessing the Cost of Doing Business
You can expect to pay more for landlord insurance than homeowner's insurance. A landlord policy typically costs 15 percent to 20 percent more than a homeowners policy, according to House Logic. For example, if your homeowner's premium cost $1,000, expect a bill of about $1,200 for landlord insurance. Renting to tenants short-term can increase your premium while adding rental-loss protection — if it isn't already included — can run about $50 more per year, House Logic says.
Renters Own Insurance
To protect your renter's interests, and possibly save yourself some grief, you might suggest or require that your tenant obtain his own coverage through renter's insurance. For example, if your renter has a dog, you may require him to get a policy that covers dog bites. Your landlord policy covers your structure and personal-property losses in case of fire, vandalism, theft or other covered events, but not necessarily your renter's. Say, for example, pipes in your home burst, ruining his expensive electronics. If he has renter's insurance his loss is covered.